The most recent data show OECD inventories remaining at very low levels.

EIA expects inventories to remain low through the coming year. This increases the potential for price volatility through the winter, and even extending to the next gasoline season.

Inventories are a good measure of the supply/demand balance that effects prices. A large over-supply (production greater than demand) will put downward pressure on prices, while under-supply will push prices upward.

As global oil production changed relative to demand, the world moved from a period of over-supply in 1998 to one of under-supply in 1999 and 2000.

OECD inventories illustrate the changes in the world petroleum balance. OECD inventories rose to high levels during 1997 and 1998 when production exceeded demand and prices dropped to around $10 per barrel in December 1998. However, when demand exceeded production in 1999 and early 2000, inventories fell to low levels, and prices rose, reaching almost $35 per barrel on a monthly average basis.